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The four highest-grossing Los Angeles-based firms saw revenue growth in 2001 that outstripped their rivals in the San Francisco Bay Area as well as smaller local competitors. But their success may have little to do with the L.A. market itself. Latham & Watkins, Gibson, Dunn & Crutcher, O’Melveny & Myers and Paul, Hastings, Janofsky & Walker say their revenue increases in 2001 were driven by national and international practices that allowed them to weather the economic downturn that has battered firms more closely tied to California-centric markets like the technology sector. And their performance last year gives them renewed bragging rights after a few years in which tech-fueled Bay Area growth left L.A. firms looking dowdy and old-fashioned by comparison. “The dominant L.A. firms do well because they have a huge capital practice and are international,” said Blane Prescott, a legal consultant with Altman Weil Inc. Their New York practice is “what helps drive them economically.” “L.A. is a good market, but a limited market,” he added. Unlike New York, which has capital markets, and Chicago, where many corporate headquarters throw off a lot of work, he said Los Angeles’ strength lies in two sectors: entertainment and small, privately held manufacturing companies. “Our year doesn’t have anything in particular to do with Los Angeles because our clients and our lawyers are diversified around the country and around the globe and L.A. is one component of that,” said Paul Hastings Chairman Seth Zachary. About 22 percent of the firm’s 722 lawyers are in Los Angeles. Average profits at the top-grossing Southern California firms raced ahead of those in Northern California in 2001. Profits per partner at Southern California firms averaged $768,000 compared with $633,000 in Northern California. In 2000, Northern Californians averaged $671,000 and firms in the south saw average profits of $652,000. That was fueled in large part by the four largest firms. Gibson Dunn led the pack in profitability with partners averaging $1.11 million, a sliver more than Latham’s $1.06 million in profits per partner. Among Southern California-based firms, Latham and Gibson Dunn also held the No. 1 and No. 2 spots in gross revenue, pulling in $769 million and $536 million, respectively. O’Melveny was No. 3, garnering $490 million in revenue. The rankings reflect a return to the status quo, which was shaken up by the technology boom. In 2000, Bay Area firms eclipsed L.A.’s top legal heavyweights. That year San Francisco’s Brobeck, Phleger & Harrison took the lead in profitability, with partners earning an average of $1.17 million, and ranked second in the state for gross revenue behind Latham. Palo Alto, Calif.-based Wilson Sonsini Goodrich & Rosati and San Francisco’s Morrison & Foerster pulled in ahead of O’Melveny. At the time, firm managers in L.A. said the shift was an aberration and claimed their diversified practices would keep them at the top of the pack. Some Silicon Valley firms “had all their eggs in one basket,” said Gibson Dunn managing partner Wesley Howell Jr. “Maybe we were smart, or lucky. Diversity is a good thing.” EUROPEAN EXPANSION Latham Chairman Robert Dell said strong practice areas — including litigation, global project finance, securitization, health care, bankruptcy and restructuring — and aggressive growth in Europe, helped boost the firm’s finances. Latham acquired two offices in Germany and one office in Paris, which together added 130 lawyers to the firm. “It’s clearly been part of our strategy to diversify in good, solid practices,” Dell said. “We were able to survive the downturn in the economy in a healthy way with aggressive growth in Europe.” Latham began focusing on global expansion about two years ago. While its L.A. office still has the largest number of lawyers among its 20 offices, it is only 20 percent of the total. O’Melveny had the largest boost in profits per partner of any California firm, jumping 33 percent from $705,000 to $940,000 in 2001. The firm also had a 22 percent increase in gross revenue. Daniel Bookin, head of O’Melveny’s San Francisco office, said the improved financials were due to the firm’s “focus on areas of long-term stable growth over the last couple of years” and its investment in talented attorneys. Like Latham and Gibson Dunn, O’Melveny also avoided putting too much emphasis on the tech sector. “We focused on technology but resisted over-committing,” Bookin said. In fact, O’Melveny was a latecomer to Silicon Valley, opening an office last year just as the market began spiraling downward. One area O’Melveny has focused on is the Asian market, particularly China. “One of the areas we think sets O’Melveny apart is our China practice,” Bookin said. The firm has 30 lawyers in its Shanghai office and expects to soon open an office in Beijing. SMALLER L.A. FIRMS The L.A. firms ranked behind the top four are more regional — and because of that were more susceptible to the economic downturn. Nonetheless, they saw grosses climb at a faster rate than their Bay Area counterparts. Brobeck and Wilson Sonsini, for example, saw their gross revenues slide 6 percent, and Cooley Godward saw a modest 3 percent increase. By comparison, L.A.’s Sheppard, Mullin, Richter & Hampton’s revenues were up 14.2 percent in 2001, while Manatt, Phelps & Phillips had an 18.2 percent increase. Like the firms at the top of the chart, Manatt Phelps attributed its growth to its diversity. “We have an exceptionally balanced practice that reflects the California economy,” said firmwide managing partner Paul Irving. The firm, which has four offices in California, one in Washington, D.C., and two in Mexico, represents energy, health, financial service, technology and entertainment companies. Loeb & Loeb was the only large Los Angeles firm to see a decline in gross revenue, from $95.5 million to $94.7 million. At the same time the firm’s attorney count dropped from 168 in 2000 to 156 in 2001. Its profits per partner rose 11 percent, from $550,000 to $614,000. Firms headquartered in Los Angeles “have the benefit of a slightly more diverse economy,” said Ruth Fisher, co-managing partner of L.A.’s Munger, Tolles & Olson. “For national or international matters, companies are still more likely to think of L.A. than San Francisco firms.” Other firm managers downplay the differences between the two regions. Gibson Dunn’s Howell said the pre-eminence of one over the other has continually changed over the decades. In the mid-1960s San Francisco was the predominant financial center, he said, and in the 1960s and early ’70s there was a dramatic shift to Southern California. “Los Angelinos were predicting at the time the demise of San Francisco.” During the last decade he said the focus shifted north again. “It sloshes back and forth between those two areas every now and then,” Howell said. “Both Northern and Southern California will end up being relevant markets in the United States, along with New York and Washington, D.C.” Related chart: Top 10 Highest Grossing Southern California Firms

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